High Inflation Dynamics: Integrating Short­-Run Accommodation and Long­-Run Steady-­States

Michael Bruno and Rafi Melnick
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Michael Bruno: The World Bank
Rafi Melnick: Bank of Israel

No 1995.06, Bank of Israel Working Papers from Bank of Israel

Abstract: The paper develops a model for the analysisof high inlfation phenomena. A central feature in of the model is the joint determination ofthe long­run steady­state rateofinlfation andofthe short­run dynamic processofinlfation. The model includes a formal structure that is based on a simple, but powerful theorem: for a non­stationary (unitroot) inflationary process a price level shock eventually translates into a higher steady state rate of inflation which equals the ratio of the shock to the mean lag of inflation. The econometric approach is based on the apparent non­-stationary behavior of the rates of change of the nominal variables in high inflation countries (prices, wages, exchange­-rate and money). An application for the inflationary process in Israel during 1964-­1993 is presented.

Pages: 40 pages
Date: 1995-07
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https://boiwebrepec.azurefd.net/RePEc/boi/wpaper/WP_1995.06.pdf First version, 1995 (application/pdf)

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